Text Size

WELCOME BACK: ALL EYES ON GREEK POLLS - We all know the U.S. presidential race polls are generally pretty close. That’s not likely to change right away. So take a break from obsessing over the U.S. numbers and spend some time on polls gauging the Greek elections, taking place June 17th. The outcome could have a HUGE amount to say about who wins the U.S. election in November. If the far left, anti-austerity, anti-bailout Syriza party wins the biggest share, it would certainly not assure a Greek exit from euro zone. But it would make it more likely, which could lead to even greater questions about Spain (whose banks are tanking) and Italy and perhaps a collapse of the common currency. In theory, the U.S. economy should be able to handle all of this, even benefit from it (see below).

But in practice, a chaotic break-up of the euro or even something close to it could lead to the kind of investor panic, bank runs and global contagion no one can predict. Remember, the collapse of Lehman Brothers on its own should not have been cataclysmic either. Latest numbers showed a surge for pro-bailout, pro-austerity New Democracy to a lead with just over 25 percent. That sent global markets higher. But the numbers are very volatile and Syriza could rise again and has performed better than polls suggest in the past. You can follow the latest poll movements in Greece with a handy Reuters tool. H/T to BI’s Joe Weisenthal for flagging the Reuters poll tracker. http://reut.rs/LzgjtD

FED OFFICIAL: U.S. SHOULD NOT GET IN “DITHER” OVER EUROPE - WSJ’s Brian Blackstone: “The U.S. Federal Reserve is well equipped to deal with any fallout from Europe's escalating debt crisis, a top official said. ‘There's absolutely no reason for people in the United States to get all in a dither,’ Federal Reserve Bank of Philadelphia President Charles Plosser said in an interview ... Mr. Plosser said that in the short run, uncertainty in Europe might even work in the U.S. economy's favor, via lower U.S. interest rates and energy prices. Worries over Greece could lead to more global investment funds being parked in the U.S., boosting liquidity, Mr. Plosser said in an interview in Eltville, in the wine-growing region near Frankfurt, where he was attending a conference ... The main danger for the U.S., he said, is that concerns over European banks could potentially lead to more restrictive financial-market funding for U.S. banks as well, ‘just because everybody's scared.’” http://on.wsj.com/KBb8vk

BREAKING: DEWEY & LEBOEUF FILES CHAPTER 11 - Bloomberg’s Linda Sandler and Sophia Pearson: “Dewey & LeBoeuf LLP, which advised Los Angeles Dodgers LLC on its restructuring, filed its own bankruptcy after failing to save the law firm following the exit of more than 120 partners and an ouster of its chairman. Dewey ... listed debt of $245 million and assets of $193 million in a Chapter 11 filing ... in U.S. Bankruptcy Court in Manhattan. The firm, formed from the merger of Dewey Ballantine LLP and LeBoeuf, Lamb, Greene & McRae LLP in 2007 had at the time of the merger more than 1,300 attorneys in 12 countries. As of the filing the firm had 150 employees in the U.S. to help with the winding down of the firm, which will be liquidated” http://bloom.bg/KRSRGK

NEW THIS MORNING: SHADOW BANKING SYSTEM CUT BY HALF - Per new report and index coming out from Deloitte: “The shadow banking system in the United States might not be as large today as regulators and market participants feared, according to a new quarterly index introduced today by the Deloitte Center for Financial Services. However, with regulatory changes and financial innovation looming, the shadow banking system could creep back very quickly ... The Deloitte Shadow Banking Index shows the volatile shadow banking system totaled $9.53 trillion at the end of 2011 ? more than 50 percent below its peak in 2008 ? and a figure considerably lower than many estimates.” Index: http://bit.ly/JqAuco Methodology: http://bit.ly/JJKljx

FIRST LOOK: WHY FSI WANTS FINRA - Financial Services Institute Chair Joe Russo, in a note to members, explains why he wants FINRA to become the self-regulatory organization for registered financial advisors: “[W]e are by no means oblivious to the many challenges FINRA creates as our industry's principal regulator, nor are we saying there won't be problems with FINRA in this expanded role. What we do know is that there is a political reality that FSI must deal with on behalf of our members -- and that reality is called the Dodd-Frank Act. Dodd-Frank recognized the regulatory gap that currently exists -- only 8% of RIAs were examined by the SEC last year. .. Knowing that left to their own devices Washington often gets it wrong, FSI knew we had to take a position that would best serve investors and our members.” Full note: http://bit.ly/KMf5hg

GOOD TUESDAY MORNING - Hope everyone had a restful weekend and gave thanks for all the soldiers who have defended our freedom and for their families and friends.

DRIVING THE DAY - Mitt Romney expected to cross the 1,144 delegate threshold to lock down the GOP nomination with today’s Texas primary. He will celebrate with a fundraiser this evening in Las Vegas hosted by super classy Donald Trump, also affectionately known by George Will as a “bloviating ignoramus.” Romney brushed off Trump’s support for the birther movement by saying he doesn’t agree with everything his supporters say but needs “50.1 percent or more” of the vote to win. President Al Gore might disagree with that assessment. Also in attendance in Vegas tonight: Newt Gingrich ... S&P/Case-Shiller home price index at 9:00 a.m. expected to show 0.3 percent gain, which would be the first month-on-month increase since last August ... Consumer confidence at 10:00 a.m. expected to rise to 69.5 from 69.2

ALSO THIS WEEK: JOBS! AUTO SALES! - Big number comes Friday with the May jobs report. Current consensus is for a gain of 150K after last month’s weak 115K. Unemployment rate not expected to change from 8.1 percent. White House and Dems hope for a return to 200K-plus growth, which would be a big boost going into the summer campaign months. Only six more of these left before Election Day. ... Also on Friday, automakers report North American sales for May

DEBT CEILING WATCH: COULD CRUSH CONFIDENCE - There are many reasons not to revisit last summer’s desultory debt ceiling debacle. Economist power-couple Betsey Stevenson and Justin Wolfers on Bloomberg break down one of them: “High-frequency data on consumer confidence from the research company Gallup ... provide a good picture of [last year’s] debt-ceiling debate’s impact ... Confidence began falling right around May 11, when [House Speaker John] Boehner first announced he would not support increasing the debt limit. It went into freefall as the political stalemate worsened through July. Over the entire episode, confidence declined more than it did following the collapse of Lehman Brothers Holdings Inc. in 2008. After July 31, when the deal to break the impasse was announced, consumer confidence stabilized and began a long, slow climb that brought it back to its starting point almost a year later ... All told, the data tell us that a debt-ceiling standoff is an act of economic sabotage” http://bloom.bg/K7Y1F5

WEST WING MUST READ: HOUSING COMEBACK? - Reuters’ Leah Schnurr and Jilian Mincer: “Six years after the housing market began its slide, dragging the U.S. economy into recession, this year's spring season -- traditionally the busiest period for home sales -- is shaping up to be the strongest since the crash. Sales rose more than 10 percent in April from a year earlier and may end the year up by as much as 13 percent ... Prices, which plunged by a third from 2006 according to some measures, are rising in some cities. Realtors report bidding wars, albeit more modest ones than during the bubble years, and buyers are snapping up homes much more quickly than only a few weeks ago. ... Even if existing home sales this year touch 4.8 million, the top end of the NAR's forecasts, that compares with more than 7 million in 2005, before the crash” http://reut.rs/Lzh85I

BIG IDEA: FED TOO COMPLEX TO MANAGE? - Reuters Breaking Views’ Daniel Indiviglio: “Part of the Fed’s problem is that it wears many hats. Among many functions, it serves as a bank advocate and lender of last resort while supervising banks. It also oversees systemic risk ... And of course, it sets U.S. monetary policy, hoping to control inflation. Its mission also requires it to aim for maximum employment. ... [O]thers worry the Fed’s efforts to rehabilitate the economy have led it into policy debates generally reserved for Congress - like recommending that government-owned mortgage companies Fannie Mae and Freddie Mac should forgive mortgage balances. ... Bernanke seems to be aggravating almost everyone. Advocates for breaking up big banks like the idea of smaller, simpler institutions. It’s tempting to contemplate whether ... the same logic would apply to the Fed” http://bit.ly/JJiPCP

ICYMI: NEW AP ELECTORAL MAP - AP’s Thomas Beaumont: “President Barack Obama faces new warning signs in a once-promising Southern state and typically Democratic-voting Midwestern states roughly five months before the election ... Obama's new worries about North Carolina and Wisconsin offer opportunities for Republican Mitt Romney, who must peel off states Obama won in 2008 if he's to cobble together the 270 electoral votes needed ... Iowa, which kicked off the campaign in January, is now expected to be tight to the finish, while New Mexico, thought early to be pivotal, seems to be drifting into Democratic territory. If the election were today, Obama would likely win 247 electoral votes to Romney's 206 ... Seven states, offering a combined 85 electoral votes, are viewed as too close to give either candidate a meaningful advantage: Colorado, Florida, Iowa, Nevada, New Hampshire, Ohio and Virginia” http://yhoo.it/K5vkIf

NY MAG ON OBAMA CAMPAIGN - New York’s John Heileman: “The Obama effort at disqualifying Romney will go beyond painting him as excessively conservative ... It will aim to cast him as an avatar of revanchism [revenge]. ‘He’s the fifties, he is retro, he is backward, and we are forward -- that’s the basic construct,’ says a top Obama strategist. ‘If you’re a woman, you’re Hispanic, you’re young, or you’ve gotten left out, you look at Romney and say, ‘This [expletive]ing guy is gonna take us back to the way it always was, and guess what? I’ve never been part of that.’ Thus, to a very real degree, 2008’s candidate of hope stands poised to become 2012’s candidate of fear.” http://bit.ly/KxinUv

ROMNEY GAINS STATURE - FT’s Richard McGregor: “[W]hether he crosses the line in Texas or not, Mr Romney has overcome months of criticism that he was a lightweight leader of a weak field and emerged from the Republican ruck as a potent adversary ... ‘The notion that he was a weak frontrunner has not been substantiated,’ says Vin Weber, a former congressman and a Romney campaign adviser. ‘People have misdiagnosed the race a lot over the past year.’ If political scientists had wanted to construct an identikit picture of a Republican candidate saddled with negatives, then they may have come up with someone resembling Mr Romney. ...

“After a banking crisis that triggered the worst economic downturn in the west since the great depression, Mr Romney also has a background in a corner of finance, private equity, known for high-risk leveraging and ruthlessness ... But despite multiple obstacles, Mr Romney has so far surmounted every challenge thrown his way and positioned himself competitively ahead of the launch of the general election campaign” http://on.ft.com/KlKB6E

EUROPE WATCH -

SPANISH PRIME MINISTER: NO RESCUE NEEDED - FT’s Miles Johnson in Madrid, Patrick Jenkins in London and Alex Barker in Brussels: “Spain’s prime minister has insisted his country will not need an international rescue for its banks as investors recoiled at a €19bn rescue of Bankia, sending the country’s borrowing costs over Germany’s to the highest level since the start of the euro. Bankia, Spain’s second-biggest bank by local deposits, would have collapsed if Madrid had not agreed to the rescue last week, Mariano Rajoy warned ...

“‘We are not going to let any regional government fall, or any bank fall, because they can’t . . . if that happens the country will fall,’ Mr Rajoy said at an unscheduled news conference, calling again on Brussels to restore confidence in the currency union ... Bankia shares fell by 13 per cent in its first trading session since the rescue was announced on Friday, while Banco Popular dropped by 7.5 per cent, and Banco Santander, the country’s largest, lost 3.2 per cent” http://on.ft.com/KRnETY

GREEK LEFT: DUMP AUSTERITY; KEEP EURO - WSJ’s James Angelo: “Greece's radical left party has upended the country's politics with an idea as simple as it is seductive: Athens can renege on the deals it made in exchange for a bailout, and still remain in the euro. Greece's future, and possibly that of Europe's monetary union, may depend on how many Greeks buy into the idea. The Coalition of the Radical Left, known as Syriza, is competing with Greece's conservative New Democracy to become the biggest party in Parliament ... Several opinion polls published over the weekend put the upstart Syriza behind the conservatives by between 1.3 and 5.7 percentage points. But the surveys are volatile: They underestimated Syriza's support in Greece's May 6 elections ... Syriza leader Alexis Tsipras, a 37-year-old former Communist youth activist, promises that despite its dire financial straits, Greece can halt austerity programs, restore social spending and nevertheless continue to receive the payments from the euro zone and the [IMF] ... The repeated warnings to the contrary ...are simply efforts to blackmail Greece into doing what they want it to do, Mr. Tsipras says” http://on.wsj.com/MTWNNr

BIGGER PROBLEMS THAN THE EURO - Reuters’ Alan Wheatley: “Europe would have to pull up its socks with or without the currency. The really big challenges to Europe’s standard of living come from globalization, technological change and aging populations. Put differently, if Europe wants first-class infrastructure and a comprehensive welfare state without piling up ever more debt, governments need to shake up working habits to generate the growth that spins off tax revenue. Yet Europe’s response, with policy makers preoccupied by the festering currency crisis, has been tardy. All the while, the rest of the world, especially Asia, has been marching on.

... The rise of China, India, Brazil and Turkey deals a double blow to Europe. Those countries can manufacture at a lower cost, signing the death warrant for many labor-intensive industries in Europe and keeping a lid on wages there. Yet, with their thirst for energy and raw materials, emerging markets raise the Continent’s input costs. The result is a compression of real incomes that Europe — and the United States — was able to hide for a long time by racking up debt. No longer.” http://nyti.ms/K7RKcm

ALSO FOR YOUR RADAR -

GOLDMAN DELAYS PLATFORM - FT’s Tracy Alloway in New York: “Goldman Sachs has been forced to delay the launch of its new corporate bond trading platform after a series of ‘logistical issues’ ... The delay highlights the technical difficulties facing big Wall Street banks as they build new electronic trading platforms - a vital component in their response to more competitive markets and new rules requiring increased trading transparency. GSessions was expected to start trading in mid-May but encountered difficulties including ‘trade reporting problems’, according to a person familiar with the platform. It has taken a year to develop and is expected to significantly change the way Goldman’s fixed-income team, one of the bank’s largest earnings generators, trades corporate bonds on behalf of their customers. The bank is also believed to be proceeding with extra caution after a series of high-profile technical glitches hit financial markets in recent weeks.” http://on.ft.com/N0jAVm

LOW WAGES DRIVE MANUFACTURING GROWTH - WSJ’s David Wessel and James R. Haggerty on pg. A1: “The celebrated revival of U.S. manufacturing employment has been accompanied by a less-lauded fact: Wages for many manufacturing workers aren't keeping up with inflation. The wage lag is a key factor contributing to the rebounding competitiveness of U.S. industry. ... But sluggish wages also are squeezing workers' incomes and spending. That, in turn, hurts retailers who target middle-income earners and restrains the vigor of the economic recovery. ... With unemployment still high and global competition intense, employers have the upper hand in asking unions to relax work rules and restrain, or reduce, wages and benefits. ... General Electric Co. announced plans to move production of electric water heaters to Louisville, Ky., from Mexico after U.S. unions agreed to a $13-an-hour starting wage for new hires, $8 to $10 or more an hour below the previous contract ...

“After a 35% decline in the number of U.S. manufacturing jobs between 1998 and the trough in 2010, the total since has risen by 4.3% to 11.9 million in April. Across the country, earnings for production and other nonsupervisory workers in manufacturing averaged $19.15 an hour in April, 3.2% below their recent March 2009 peak and back to where they were in 2000, adjusted for inflation, the Bureau of Labor Statistics says. In contrast, average hourly earnings for all private-sector production and nonsupervisory workers across the economy have risen 5.3% to $19.72 since 2000.” http://on.wsj.com/KX7FW5